Automatic pensions to generate more than £12.5bn
Automatic enrolment into pension schemes could create an extra six million people saving, generating £12.5bn annually to the retirement pot by 2017, research from Standard Life suggested today.
The Keep on Nudging report, developed with academics from the University of Edinburgh, was based on a survey of more than 600 employees who represented the “squeezed middle”, earning £18,000 to £45,000 a year.
Just under half of them (48%) said they would find it easy to save an extra £50 a month if they had to, the report found.
But it also said clear communication was crucial to the scheme's success.
Under the pension reforms, all eligible employees will be automatically enrolled into a qualifying workplace pension scheme.
The report found retention rates could be as high as 82% when information is presented “clearly and effectively”.
It said: “Making careful communication a priority can ensure the success of auto-enrolment.
“By our calculation it will add six million new people saving for retirement, with increased annual retirement savings of £12.5bn annually by 2017 — fully in line with the Department for Work and Pensions's ambition.”
The study found that 26% of employees who have never had any form of pension would choose to opt-out, significantly higher than the 12% who opt-out among employees with some prior or current form of pension saving.
The report said this confirmed the need for financial education.
Just over six in 10 who would opt out said it was because they couldn’t afford it — a third said they didn’t trust the Government and 28% didn’t trust pensions.
The survey found: “An additional £50 a month would double the individual pension contributions of someone on an annual salary of £20,000.”
A DWP spokesman said: “Our reforms will get millions saving into workplace pensions, many for the first time.
“It's vital that people understand these changes, so we can help them save for retirement.”